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Item 7. Management’s Discussion and Analysis

2023-12-15 compared with 2022-12-22 · 263 added, 257 removed, 311 unchanged (63% of the section changed)

Management’s Discussion and Analysis

of Financial Condition and Results of Operations

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Magyar Bancorp, Inc.

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Our results of operations depend primarily on our net interest income which is the difference between the interest

earn on our interest-earning assets and the interest

we pay on our interest-bearing liabilities.

Our net interest income is primarily affected by the market interest rate environment, the

shape of the U.S.

Treasury yield curve, the timing of the placement of interest-earning assets and interest-bearing liabilities, and the

prepayment rate on our mortgage-related assets.

Other factors that may affect our results of operations are general and local economic

and competitive conditions, government policies and actions of regulatory authorities.

we earn on our interest-earning assets and the interest we pay on our interest-bearing liabilities.

Our net interest income is primarily

affected by the market interest rate environment, the shape of the U.S.

Treasury yield curve, the timing of the placement of interest-earning

assets and interest-bearing liabilities, and the prepayment rate on our mortgage-related assets.

Other factors that may affect our results

of operations are general and local economic and competitive conditions, government policies and actions of regulatory authorities.

During the year ended September

30, 2022, the Company’s total assets grew $24.6 million, or 3.2%, to $798.5 million.

The increase was attributable to a $34.5 million

increase, or 5.9%, to $619.8 million in loans receivable, net of allowance of loss and a $30.3 million increase, or 42.9%, to $100.9 million

in investment securities, partially offset by a $44.3 million decrease in cash and cash equivalents.

Stockholders’ equity increased

$861,000, or 0.9%, to $98.5 million at September 30, 2022 from $97.6 million at September 30, 2021.

The increase in stockholders’

equity was primarily attributable to the Company’s results of operations for the year ended September 30, 2022, partially offset

by stock repurchases dividends paid and other comprehensive loss.

On July 21, 2022, the Company announced a stock repurchase program of

up to 5% of its outstanding shares of common stock, or 354,891 shares.

The Company repurchased 352,697 shares at an average price of $12.90

per share through September 30, 2022, reducing outstanding shares to 6,745,128.

In addition, during the year ended September 30, 2022,

the Company paid dividends totaling $0.21 per share.

30, 2023, the Company’s total assets grew $108.7 million, or 13.6%, to $907.3 million compared with $798.5 million at September

The increase was attributable to a $69.2 million increase in net loans receivable and a $41.3 million increase in interest-earning

deposits with banks, offset by a $4.9 million decrease in investment securities.

Total deposits increased $87.7

million, or 4.4%, to $667.7 million during the year ended September 30, 2022 from $639.8 million at September 30 2021.

The growth in deposits

during the twelve months ended September 30, 2022 occurred in money market account balances, which increased $34.3 million, or 18.3%,

to $222.2 million, in interest-bearing checking account balances, which increased $27.3 million, or 38.3% to $98.6 million, in non-interest

checking account balances, which increased $442,000, or 0.2%, to $182.4 million, and in savings account balances, which increased $126,000,

or 0.2%, to $81.9 million.

Offsetting these increases was a $34.3 million, or 29.3%, decrease in certificates of deposit (including individual

retirement accounts), to $82.6 million.

million, or 13.1%, to $755.5 million and stockholders’ equity increased $6.3 million, or 6.4%, to $104.8 million during the year

ended September 30, 2023

The Company’s net income

increased $1.8 million, or 29.4%, to $7.9 million during the year ended September 30, 2022 compared with net income of $6.1 million for

the year ended September 30, 2021.

The increase in net income was due to higher net interest and dividend income, lower provisions for

loan losses, and lower non-interest expenses, partially offset by lower non-interest income.

decreased $210,000, or 2.7%, to $7.7 million during the year ended September 30, 2023 compared with net income of $7.9 million for the

year ended September 30, 2022.

Throughout fiscal 2024, we expect

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of our loan portfolio is collateralized by real estate, appraisals of the underlying value of property securing loans and discounted cash

flow valuations of properties are critical in determining the amount of the allowance required for specific loans.

flow valuations of properties are critical in determining the amount of the

allowance required for specific loans.

Assumptions for appraisals

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We consider a variety of factors in establishing this estimate including,

but not limited to, current economic conditions, delinquency statistics,

geographic and industry concentrations, the

adequacy of the underlying collateral, the financial strength of the borrower, results of internal loan reviews and other relevant factors.

This evaluation is inherently subjective as it requires material estimates by management that may be susceptible to significant change

based on changes in economic and real estate market conditions.

but not limited to, current economic conditions, delinquency statistics, geographic and industry concentrations, the adequacy of the underlying

collateral, the financial strength of the borrower, results of internal loan reviews and other relevant factors.

This evaluation is inherently

subjective as it requires material estimates by management that may be susceptible to significant change based on changes in economic

and real estate market conditions.

The evaluation has a specific

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greater than the allowances we have established, which could have a material negative effect on our financial results.

For the fiscal year ended September

30, 2022 and through the fiscal year ending September 30, 2023, we followed and will follow the incurred loss methodology for determining

our allowance for loan loss.

We intend to adopt the CECL standard for determining the amount of our allowance for credit loss beginning

October 1, 2023.

The Company will adopt

Accounting Standards Update (“ASU”) 2016-13, Financial Instruments - Credit Losses:

Measurement of Credit Losses on Financial

Instruments on October 1, 2023, using a modified retrospective approach.

The Company’s implementation process includes scoping,

segmentation and the design of a methodology appropriate for each respective financial instrument.

The process also includes the development

of loss forecasting models as well as the incorporation of qualitative adjustments.

Evaluation of technical accounting topics, updates

to our allowance policy documentation, model validation, governance and reporting, processes and related internal controls, as well as

overall operational readiness has been completed throughout September 30, 2023 in preparation for adoption.

Based on analyses performed during

the quarter ending September 30, 2023, as well as an implementation analysis utilizing exposures and forecasts of economic conditions

as of September 30, 2023, the Company recorded a reduction to its allowance for credit losses on October 1, 2023 in the amount of $492,000.

The reduction was comprised of a reduction in the allowance for on-balance sheet exposures, which includes held to maturity debt securities,

totaling $1.0 million and an increase in the allowance for off-balance sheet exposures, which includes unfunded commitments, totaling

The impact will be reflected as a cumulative effect adjustment, net of taxes.

The change in the allowance for credit losses

upon adoption will not have a material effect on the Company’s capital and regulatory capital amounts and ratios.

Deferred Income Taxes.

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Total Assets.

assets increased $24.6 million, or 3.2%, to $798.5 million during the year ended September 30, 2022 compared with $774.0 million at September

The change was attributable to a $34.5 million, or 5.9%, increase in loans receivable, net of allowance of loss, to $619.8 million

and a $30.3 million, or 42.9%, increase in investment securities to $100.9 million, partially offset by a $44.3 million decrease in cash

and cash equivalents.

Stockholders’ equity increased $861,000, or 0.9%, to $98.5 million at September 30, 2022 from $97.6 million

at September 30, 2021.

assets increased $108.7 million, or 13.6%, to $907.3 million during the year ended September 30, 2023 compared with $798.5 million at

September 30, 2022.

The change was attributable to a $69.2 million, or 11.2%.

increase in loans receivable, net of allowance for loan

loss, to $689.1 million and a $41.3 million, or 147.1%, increase in

interest-earning deposits with banks to $69.4 million, partially offset

by a $4.9 million, or 4.9%, decrease in investment securities to $96.0 million.

Loans Receivable.

loan receivable increased $34.3 million, or 5.8%, to $628.9 million at September 30, 2022 from $594.6 million at September 30, 2021.

occurred in commercial real estate loans, which increased $61.9 million, or 22.1%, to $342.8 million and in one-to four-family residential

mortgage loans (including home equity lines of credit), which increased $12.1 million, or 5.5%, to $233.1 million.

Offsetting these increases

were decreases in commercial business loans, which decreased $34.0 million, or 49.5%, to $34.7 million, in construction loans, which decreased

$5.1 million, or 25.2%, to $15.2 million and in other consumer loans, which decreased $621,000, or 16.6%, to $3.1 million.

the reduction of commercial business loans were the repayment of $25.1 million in PPP loans.

loans receivable increased $69.3 million, or 11.0%, to $698.2 million at September 30, 2023 from $628.9 million at September 30, 2022.

Growth occurred in commercial real estate loans, which increased $46.3 million, or 13.5%, to $389.1 million, in one-to four-family residential

mortgage loans (including home equity lines of credit), which increased $21.6 million, or 9.3%, to $254.7 million, and in construction

loans, which increased $6.6 million, or 43.5%, to $21.9 million.

Offsetting these increases were decreases in commercial business loans,

which decreased $4.5 million, or 12.9%, to $30.2 million and in other consumer loans, which decreased $771,000, or 24.6%, to $2.3 million.

Total loans receivable at September

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million (54.5%) in commercial real estate loans, $214.4 million (34.1%) in one- to four- family residential mortgage loans, $34.7 million

(11.6%) in commercial business loans (including $25.1 million in PPP loans), $20.4 million (3.4%) in construction loans, and $21.7 million

(3.6%) in home equity lines of credit and other loans.

Total non-performing loans decreased

(5.5%) in commercial business loans, $15.2 million (2.4%) in construction loans, and $21.8 million (3.5%) in home equity lines of credit

and other loans.

Total non-performing loans increased

$2.2 million, or 79.3%, to $5.1 million at September 30, 2023 from $2.8 million at September 30, 2022.

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to total loans was 0.7% at September 30, 2023 compared to 0.5% at September 30, 2022.

There were no non-performing loans

secured by one-to four-family residential properties, including home equity lines of credit and other consumer loans, at September 30,

2022, compared with $1.2 million at September 30, 2021.

During the year ended September 30, 2022, there were no charge-offs against the

allowance for loan loss for residential real estate loans while $1,000 was recovered from prior year charge-offs.

There were no non-performing commercial

real estate loans at September 30, 2022, compared with $1.1 million at September 30, 2021.

During the year ended September 30, 2022 there

were no charge-offs against the allowance for loan loss and for commercial real estate loans while $53,000 was recovered from prior year

There were two non-performing

one-to four-family residential loans totaling $386,000, at September 30, 2023 compared with none at September 30, 2022.

The weighted average

loan-to-value of these properties was 35% based on updated appraisals of the real estate securing the loans.

During the year ended September

30, 2023, there were no charge-offs against the allowance for loan loss for one-to four-family residential real estate loans while $4,000

was recovered from prior year charge-offs.

There was one non-performing commercial

real estate loan totaling $2.2 million at September 30, 2023, compared with none at September 30, 2022.

The loan-to-value of this property

was 82% based on an updated appraisal of the real estate securing the loan.

Magyar Bank had begun foreclosure proceedings on the property

securing this loan and pursuing judgments against the guarantors of the loan at September 30, 2023.

During the year ended September 30,

2023 there were no charge-offs against the allowance for loan loss or recoveries for commercial real estate loans.

There were no non-performing commercial

business loans at September 30, 2022, compared with $1.3 million at September 30, 2021.

During the year ended September 30, 2022 there

were no charge-offs against the allowance for loan loss for commercial business loans and there were no recoveries from prior year charge-offs.

Non-performing construction loans

decreased $1.7 million, or 38.1%, to $2.8 million at September 30, 2022 from $4.6 million at September 30, 2021.

Magyar Bank had begun

foreclosure proceedings on the properties securing these loans at September 30, 2022.

During the year ended September 30, 2022, there

were no charge-offs or recoveries on construction loans.

business loans at September 30, 2023 or 2022.

During the year ended September 30, 2023 there were two charge-offs totaling $488,000 against

the allowance for loan loss for commercial business loans and no recoveries from prior year charge-offs.

There were two non-performing

construction loans totaling $2.5 million at September 30, 2023 compared with $2.8 million at September 30, 2022.

The weighted average

loan-to-value of these properties was 54% based on updated appraisals of the real estate securing the loans.

Magyar Bank had begun foreclosure

proceedings on the properties securing these loans and pursuing judgments against the guarantors of the loans at September 30, 2023.

the year ended September 30, 2023, there were no charge-offs against the allowance for loan loss or recoveries for construction loans.

The ratio of non-performing loans

and troubled debt restructurings to total loans receivable decreased to 0.53% at September 30, 2022 from 1.43% at September 30, 2021.

The allowance for loan losses increased $358,000 to $8.4 million, or 297.5% of non-performing loans at September 30, 2022 compared with

$8.1 million, or 99.0% of non-performing loans, at September 30, 2021.

Provisions for loan loss during the year ended September 30, 2022

were $304,000 while net recoveries were $54,000, compared with a provision of $1.6 million and net recoveries of $46,000 for the prior

The allowance for loan losses was 1.34% and 1.36% of gross loans outstanding at September 30, 2022 and 2021, respectively.

to total loans receivable increased to 0.73% at September 30, 2023 from 0.45% at September 30, 2022.

The allowance for loan losses decreased

$103,000 to $8.3 million, or 163.9% of non-performing loans at September 30, 2023 compared with $8.4 million, or 297.5% of non-performing

loans at September 30, 2022.

Provisions for loan loss during the year ended September 30, 2023 were $381,000 while net charge-offs were

$484,000, compared with a provision of $304,000 and a net recovery of $54,000 for the prior year.

The allowance for loan losses was 1.19%

and 1.34% of gross loans outstanding at September 30, 2023 and 2022, respectively.

The allowance for loan loss decreased in amount and

as a percentage of gross loans during the year from higher balances of lower risk loans and lower balances of higher risk loans in addition

to lower adjustments to the historical loss for all loan categories for improving economic conditions.

Investment Securities.

Investment securities increased $30.3 million, or 42.9%, to $100.9 million at September 30, 2022 from $70.6 million at September 30, 2021.

Investment securities decreased $4.9 million, or 4.9%, to $96.0 million at September 30, 2023 from $100.9 million at September 30, 2022.

Investment securities at September 30, 2023 consisted of $65.8 million in mortgage-backed securities issued by U.S.

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government-sponsored enterprise debt securities, $3.0 million in corporate

notes, $3.5 million in municipal bonds and $224,000 in “private-label” mortgage-backed securities.

notes, $3.5 million in municipal bonds and

$207,000 in “private-label” mortgage-backed securities.

There were no other-than-temporary-impairment

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Securities available-for-sale

decreased $3.7 million, or 28.6%, to $9.2 million at September 30, 2022 from $12.9 million at September 30, 2021.

The decrease was attributable

to $1.9 million in principal repayments and unrealized losses of $1.7 million.

There were no purchases of securities available-for-sale

during the year ended September 30, 2022.

Securities held-to-maturity increased

increased $896,000, or 9.7%, to $10.1 million at September 30, 2023 from $9.2 million at September 30, 2022.

The increase was attributable

to purchases totaling $2.0 million, partially offset by principal repayments totaling $970,000, premium amortization of $51,000 and unrealized

losses of $47,000.

Securities held-to-maturity decreased

$5.8 million, or 6.3%, to $85.8 million at September 30, 2023 from $91.6 million at September 30, 2022.

The increase was the result

of $41.1 million in security purchases, partially offset by $7.0 million in principal repayments and the amortization of $112,000 in net

premiums paid during the year ended September 30, 2022.

The decrease was the attributable

to principal repayments and maturities totaling $10.3 million and premium amortization of $85,000, partially offset by purchases totaling

$4.6 million.

Bank-Owned Life Insurance.

The cash surrender value of life insurance held for directors and officers of Magyar Bank increased $3.4 million, or 23.6%, to $17.7 million

The cash surrender value of life insurance held for directors and officers of Magyar Bank increased $370,000, or 2.7%, to $18.0 million

at September 30, 2023 from $17.7 million at September 30, 2022.

The Company purchased new policies on officers of the Bank totaling $3.0

million and recorded an increase in the cash surrender value of the policies totaling $372,000 during the twelve months ended September

The change was due to an increase in the cash surrender value of the policies.

The Company did not purchase any new life insurance policies during the year ended September 30, 2023.

Other Real Estate Owned.

OREO decreased $355,000, or 55.8%, to $281,000 at September 30, 2022 from $636,000 at September 30, 2021 due to the sale of two

properties during the year.

The Company’s OREO was reduced to one commercial real estate property totaling $281,000 that was under

contract of sale at September 30, 2022.

OREO increased $47,000, or 16.7%, to $328,000 at September 30, 2023 from $281,000 at September 30, 2022.

The change was due to

the capital improvements to the one OREO property held by the Bank, which was under contract for sale at September 30, 2023.

which include noninterest-bearing demand deposits, interest-bearing demand deposits, money market deposits, savings deposits and time

deposits, are the primary source of the Company’s funds.

The Company offers a variety of products designed to attract

and retain customers, with primary focus on building and expanding relationships.

The Company continues to focus on establishing

relationships with business borrowers, seeking deposits as well as lending relationships.

The Company offers a variety of products designed to attract and retain

customers, with primary focus on building and expanding relationships.

The Company continues to focus on establishing relationships

with businesses, seeking deposits as well as lending relationships.

Total deposits increased $87.7

million, or 13.1%, to $755.5 million at September 30, 2023 from $667.7 million at September 30, 2022.

The increase in deposits during the

twelve month ended September 30, 2022 occurred in money market account balances, which increased $34.3 million, or 18.3%, to $222.2 million,

in interest-bearing checking account balances, which increased $27.3 million, or 38.3% to $98.6 million, in non-interest checking account

balances, which increased

$442,000, or 0.2%, to $182.4 million, and in savings

account balances, which increased $126,000, or 0.2%, to $81.9 million.

Offsetting these increases was a $34.3 million, or 29.3%, decrease

in certificates of deposit (including individual retirement accounts), to $82.6 million.

Included in certificates of deposit were $6.0

million in brokered certificates of deposit at September 30, 2022 and 2021.

The increase in deposits during

the year ended September 30, 2023 occurred in money market account balances, which increased $62.7 million, or 28.2%, to $284.9 million,

in certificates of deposit (including individual retirement accounts) which increased $22.1 million, or 26.7%, to $104.7 million, in interest-bearing

checking account balances, which increased $16.5 million, or 16.8% to $115.2 million, and in non-interest checking account balances, which

increased $6.1 million, or 3.4%, to $188.5 million.

Offsetting these increases was a decline in savings account balances, which decreased

$19.7 million, or 24.1%, to $62.2 million.

Included in the Company’s total deposits were $13.8 million in brokered certificates

The Company held $246.4 million

in municipal depositor deposits at September 30, 2023, which represents 32.6% of total deposits.

Under State of New Jersey legislation,

municipal deposits exceeding 70% of the Bank’s capital must be collateralized.

Magyar Bank was in compliance with the State’s

requirements at September 30, 2023.

The FDIC provides $250,000 of

deposit insurance per depositor for each account ownership category.

Depositors may qualify for coverage over $250,000 if they have funds

in different ownership categories and all FDIC requirements are met.

Included in the Company’s total deposits at September 30, 2023

was an estimated $109.3 million that was not collateralized and exceeded the FDIC’s insurance coverage limit.

The Company’s deposit strategy

in 2022 focused on growing its non-interest checking account balances and reducing the overall cost of its interest-bearing liabilities

to offset rising market interest rates.

in 2023 focused on growing its non-interest checking account balances and managing the overall cost of its interest-bearing liabilities

during a period of rapidly rising market interest rates.

Borrowed Funds.

decreased $7.7 million, or 33.1%, to $15.6 million at September 30, 2022 from $23.4 million at September 30, 2021.

The decrease was due

to the repayment of maturing long-term FHLBNY advances.

increased $13.9 million, or 88.9%, to $29.5 million at September 30, 2023 compared with $15.6 million at September 30, 2022.

borrowed several long-term advances from the FHLBNY during the year ended September 30, 2023 to fund its loan originations.

Stockholders’ Equity.

Stockholders’ equity increased $861,000, or 0.9%, to $98.5 million at September 30, 2022 from $97.6 million at September

Stockholders’ equity increased $6.3 million, or 6.4%, to $104.8 million at September 30, 2023 from $98.5 million at September

The increase was attributable to the Company’s net income from operations totaling $7.7 million, partially offset by $1.3

million in share repurchases, $1.4 million in dividends paid, and $1.2 million in other comprehensive losses.

The Company’s book

value per share increased to $14.60 at September 30, 2022 from $13.76 at September 30, 2021, based on total equity of $98.5 million and

6,745,128 shares outstanding.

million in dividends paid to shareholders and $1.2 million in treasury share repurchases.

The Company’s book value per share increased

to $15.70, based on total equity of $104.8 million and 6,674,184 shares outstanding at September 30, 2023 from $14.60, based on total

equity of $98.5 million and 6,745,128 shares outstanding.at September 30, 2022.

Comparison of Operating Results

for the Years Ended September 30, 2023 and 2022

Company’s net income increased $1.8 million, or 29.4%, to $7.9 million during the year ended September 30, 2022 compared with $6.1

million for the year ended September 30, 2021 due to higher net interest and dividend income, lower

provisions for loan losses, and lower non-interest expenses, partially offset by lower non-interest income.

Company’s net income decreased $210,000, or 2.7%, to $7.7 million during the year ended September 30, 2023 compared with $7.9 million

for the year ended September 30, 2022 due to higher non-interest expenses, partially offset by higher net interest and dividend income.

Net Interest and Dividend

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During the year ended September

30, 2022, net interest and dividend income increased $1.4 million, or 5.6%, to $27.0 million compared to $25.6 million for the year ended

September 30, 2021.

Interest and dividend income increased $975,000, or 3.4%, to $29.5 million at September 30, 2022 from $28.5 million

at September 30, 2021, while interest expense decreased $457,000, or 15.5%, to $2.5 million at September 30, 2022 from $2.9 million at

30, 2023, net interest and dividend income increased $715,000, or 2.6%, to $27.7 million compared to $27.0 million for the year ended

September 30, 2022.

The Company’s net interest margin increased eight basis points to 3.61% for the year ended September 30, 2022

Interest and dividend income increased $8.6 million, or 29.0%, to $38.1 million at September 30, 2023 from $29.5 million

at September 30, 2022, while interest expense increased $7.6 million, or 316.0%, to $10.3 million at September 30, 2023 from $2.5 million

at September 30, 2022.

The Company’s net interest margin decreased 11 basis points to 3.50% for the year ended September 30, 2023

from 3.61% for the year ended September 30, 2022.

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2023 and 2022.

The table presents the annualized average yield on interest-earning assets and the annualized average cost of interest-bearing

We derived the yields and costs by dividing annualized income or expense by the average balance of interest-earning assets

and interest-bearing liabilities, respectively, for the periods shown.

We derived average balances from daily balances over the periods

Interest income includes fees that we consider adjustments to yields.

the Year Ended September 30,

The table presents the average yield on interest-earning assets and the average cost of interest-bearing liabilities.

derived the yields and costs by dividing income or expense by the average balance of interest-earning assets and interest-bearing liabilities,

respectively, for the periods shown.

We derived average balances from daily balances over the periods indicated.

Interest income includes

fees that we consider adjustments to yields.

Interest income on loans includes loan fees, but such amounts were not material for the years

ended September 30, 2023 or 2022.

Year Ended September 30,

(Dollars In Thousands)

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Net interest margin (6)

Average interest-earning assets to

average interest-bearing liabilities

Average interest-earning assets to average

interest-bearing liabilities

(1) The average balance of loans receivable, net includes non-accrual loans.

(2) Calculated using the Company's 21% federal tax rate.

(3) Includes passbook savings, money market passbook and club accounts.

interest-bearing checking and money market accounts.

certificates of deposits and individual retirement accounts.

(5) Calculated

as annualized net interest income divided by average total interest-earning assets.

(4) Includes interest-bearing checking and money market accounts.

(5) Includes certificates of deposits and individual retirement accounts.

(6) Calculated as annualized net interest income divided by average total interest-earning assets.

Rate/Volume Analysis.

The following table presents the effects of changing rates and volumes on our net interest income for the periods indicated.

column shows the effects attributable to changes in rate (changes in rate multiplied by average volume).

The following table presents the effects of changing rates and volumes on our net interest income for the years indicated.

The rate column

shows the effects attributable to changes in rate (changes in rate multiplied by average volume).

The volume column shows the effects

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based on the changes due to rate and the changes due to volume.

There were no out-of-period adjustments excluded from the table below

September 30,

Increase (decrease) due

Increase (decrease) due to

(In thousands)

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Total interest-bearing liabilities

Increase (decrease) in tax equivalent

net interest income

Increase (decrease) in tax equivalent net interest

Change in tax-equivalent basis adjustment

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(2) Includes passbook savings, money market passbook and club accounts.

interest-bearing checking and money market accounts.

certificates of deposits and individual retirement accounts.

(3) Includes interest-bearing checking and money market accounts.

(4) Includes certificates of deposits and individual retirement accounts.

Interest and Dividend Income.

Interest and dividend income increased $975,000, or 3.4%, to $29.5 million for the year ended September 30, 2022 from $28.5 million for

the year ended September 30, 2021.

The average balance of interest-earnings assets between the two periods increased $23.0 million, or

3.2%, to $747.7 million from $724.6 million, while the yield on such assets increased 1 basis point to 3.95% for the year ended September

Interest and dividend income increased $8.6 million, or 29.0%, to $38.1 million for the year ended September 30, 2023 from $29.5 million

for the year ended September 30, 2022.

The average balance of interest-earnings assets between the two periods increased $43.7 million,

or 5.8%, to $791.4 million from $747.7 million, while the yield on such assets increased 86 basis point to 4.81% for the year ended September

30, 2023 from 3.95% for the year ended September 30, 2022.

The increase in yield on the Company’s

assets was attributable to 1) the reinvestment of repaid Paycheck Protection Program (“PPP”) loans (earning 1.0%) into higher

yielding commercial real estate loans, 2) the receipt of $681,000 in prior period interest income during the year ended September 30,

2022 from previously non-performing loans, and 3) higher market interest rates, which increased the yield on the Company’s interest-earning

deposits with banks.

Offsetting these increases was a $1.2 million decrease in PPP loan fees recognized, which totaled $836,000 during

the twelve months ended September 30, 2022 compared with $2.0 million for the twelve months ended September 30, 2021.

Interest income on loans increased

$290,000, or 1.1%, to $27.8 million for the year ended September 30, 2022 from $27.5 million for the year ended September 30, 2021, while

the average balance of loans decreased $4.5 million, or 0.8%, to $600.6 million from $605.2 million.

The average yield on such loans increased

nine basis points to 4.64% at September 30, 2022 from 4.55% for the year ended September 30, 2021.

$7.4 million, or 26.5%, to $35.2 million for the year ended September 30, 2023 from $27.8 million for the year ended September 30, 2022,

while the average balance of loans increased $68.2 million, or 11.4%, to $668.9 million from $600.6 million.

The average yield on such

loans increased 63 basis points to 5.27% at September 30, 2023 from 4.64% for the year ended September 30, 2022 from higher market interest

Interest earned on investment

securities, including interest earned on deposits but excluding FHLBNY stock, increased $702,000, or 79.6%, to $1.6 million for the year

ended September 30, 2022 from $882,000 for fiscal 2021.

The increase was attributable to a 35 basis point increase in the average yield

on investment securities and interest earned on deposits to 1.10% from 0.75%, and a $27.9 million, or 23.8%, increase in the average balance

of investment securities and interest earning deposits to $145.5 million from $117.5 million during the year ended September 30, 2022.

securities, including interest earned on deposits but excluding FHLBNY stock, increased $1.1 million, or 70.5%, to $2.7 million for the

year ended September 30, 2023 from $1.6 million for fiscal 2022.

The increase was attributable to a 115 basis point increase in the average

yield on investment securities and interest earned

on deposits to 2.25% from 1.10%, partially offset by a $25.0 million, or 17.2%, decrease

in the average balance of investment securities and interest earning deposits to $120.5 million from $145.5 million during the year ended

September 30, 2022.

Interest Expense.

expense decreased $457,000, or 15.5%, to $2.5 million for the year ended September 30, 2022 from $2.9 million for the year ended September

The average balance of interest-bearing liabilities decreased $21.3 million, or 4.2%, between the two periods while the cost

of such liabilities decreased seven basis points to 0.51% for the year ended September 30, 2022 compared with the prior year period.

market interest rates were primarily responsible for the drop in the cost of the Company’s interest-bearing liabilities for the

year ended September 30, 2022.

expense increased $7.9 million, or 316.0%, to $10.3 million for the year ended September 30, 2023 from $2.5 million for the year ended

September 30, 2022.

The average balance of interest-bearing liabilities increased $38.4 million, or 7.8%, to $527.3 million from $488.9

million between the two periods while the average cost on such interest-bearing liabilities increased 145 basis points to 1.96% for the

year ended September 30, 2023 from 0.51% for the year ended September 30, 2022.

Higher market interest rates were primarily responsible

for the increase in the cost of the Company’s interest-bearing liabilities for the year ended September 30, 2023.

The average balance of interest-bearing

deposits increased $7.5 million, or 1.6%, to $470.5 million for the year ended September 30, 2022 from $463.0 million for the prior year

while the average cost of such deposits decreased 5 basis points to 0.44% from 0.49%.

Interest expense on deposits decreased $217,000,

or 9.5%, to $2.1 million for the year ended September 30, 2022 from $2.3 million for the year ended September 30, 2021.

Interest expense on advances decreased

deposits increased $31.2 million, or 6.6%, to $501.7 million for the year ended September 30, 2023 from $470.5 million for the year ended

September 30, 2022 while the average cost on such interest-bearing deposits increased 145 basis points to 1.89% from 0.44%.

Average expense

on interest-bearing deposits increased $7.4 million, or 358.4%, to 9.5 million at September 30, 2023 compared with $2.1 million at September

Interest expense on advances increased

$432,000, or 104.3%, to $846,000 for the year ended September 30, 2023 from $414,000 for the year ended September 30, 2022.

cost of borrowings increased 106 basis points to 3.31% for the year ended September 30, 2023 from 2.25% for the year ended September 30,

2021 while the average balance of those borrowings decreased $28.8 million to $18.4 million for the year ended September 30, 2022 from

2022 while the average balance of those borrowings increased $7.2 million to $25.6 million for the year ended September 30, 2023 from

$18.4 million the prior year.

9 unchanged sentences

The provision for loan losses

decreased $1.3 million, or 81.3%, to $304,000 for the year ended September 30, 2022 compared to $1.6 million for the year ended September

The lower provisions resulted from lower qualitative adjustment factors to the historical loss rates in fiscal 2022 compared

with the prior year as well as lower balances in higher risk segments of the loan portfolio.

There were net recoveries of $54,000 during

the year ended September 30, 2022 compared with net recoveries of $46,000 for the year ended September 30, 2021.

increased $77,000, or 25.3%, to $381,000 for the year ended September 30, 2023 compared to $304,000 for the year ended September 30, 2022.

There were $488,000 in loan charge-offs and $4,000 in loan recoveries for the year ended September 30, 2023 compared with no loan charge-offs

and $54,000 in loan recoveries for the year ended September 30, 2022.

Other Income.

income decreased $694,000, or 20.4%, to $2.7 million during the twelve months ended September 30, 2022 compared to $3.4 million for the

twelve months ended September 30, 2021.

Fees for other customer services decreased to $0 for fiscal 2022 from $777,000 for fiscal 2021,

during which the Company received a fee of three percent of the Small Business Relief Grants it assisted with processing.

Higher gains from the sale of

SBA loans helped offset lower interest rate swap fees between periods.

The Bank sells the guaranteed portion of its SBA loans in the secondary

During the year ended September 30, 2022, $9.5 million in loans were sold, generating $925,000 in gains compared with sales of

$6.4 million and $749,000 in gains for the twelve months ended September 30, 2021.

During the twelve months ended September 30, 2022,

the Company generated $76,000 in interest rate swap fees compared with $313,000 for the year ended September 30, 2021.

income decreased $33,000, or 1.2%, to $2.7 million during the year ended September 30, 2023 compared with the year ended September 30,

2022 from lower gains on the sale of SBA loans, partially offset by higher service charge income between periods.

The Bank sells the guaranteed

portion of the SBA 7(a) program loans it originates in the secondary market.

Gains from the sale of SBA loans were $565,000 during the

year ended September 30, 2023 compared with $925,000 during the year ended September 30, 2022 due to a reduction in the volume of loans

Service charge income increased

$404,000, or 34.0%, to $1.6 million compared with $1.2 million for the prior year from higher commercial loan prepayment fees received

during the current year.

The Company received $423,000 in prepayment penalties during the year ended September 30, 2023, compared with

$130,000 during the year ended September 30, 2022.

Other Expenses.

expenses decreased $381,000, or 2.0%, to $18.3 million compared to $18.6 million for the year ended September 30, 2021.

The decrease was

primarily attributable to professional fees, which decreased $657,000, or 38.2%, due to lower legal and consulting fees related to the

collection and foreclosure of non-performing loans.

Loan servicing expenses and FDIC

deposit insurance premiums decreased $212,000 and $207,000, respectively, from lower levels of non-performing loans and the Company’s

higher capital levels.

Partially offsetting these decreases were higher compensation and marketing and business development expenses.

Compensation and benefit expense increased $411,000, or 3.9%, due to annual merit increases, fewer open positions within the Bank, and

higher incentive plan accruals.

Marketing and business development expenses increased $221,000, or 97.8%, as the Bank is celebrating its

100 year anniversary with increased events and advertising, while business development opportunities increased as the COVID pandemic restrictions

expenses increased $1.0 million, or 5.7%, to $19.3 million compared to $18.3 million for the year ended September 30, 2022 due primarily

to higher compensation, benefit, FDIC insurance premium and occupancy expenses, partially offset by lower professional fees.

Compensation and benefit expense

increased $650,000, or 6.2%, to $11.1 million for the year ended September 30, 2023 from $10.5 million for the year ended September 30,

Stock award and stock option expenses related to the Company’s 2022 Equity Incentive Plan accounted for a $658,000 increase

in compensation expense.

In addition, the Company incurred higher director fees, which increased $149,000 during the year ended September

30, 2023 from the prior year due to the addition of three new directors.

Deposit insurance premiums increased

$125,000, or 58.1%, to $340,000 for the year ended September 30, 2023 from $215,000 for the year ended September 30, 2022 from higher

insurance assessment rates implemented by the FDIC for all insured institutions effective January 1, 2023.

Occupancy expenses increased $171,000,

or 5.7%, to $3.2 million for the year ended September 30, 2023 from $3.0 million for the year ended September 30, 2022.

The increase was

attributable to additional maintenance and repairs to the Bank’s branch locations, the elimination of off-site records previously

held in storage and inflationary increases in computer processing and communications.

Professional fees decreased $307,000,

or 28.9%, to $755,000 for the year ended September 30, 2023 from $1.1 million for the year ended September 30, 2022 from lower legal and

consulting fees related to the collection and foreclosure of non-performing assets.

Income Tax Expense.

1 unchanged sentence

of $3.3 million on income of $11.2 million for the year ended September 30, 2022.

The higher income tax expense resulted from a $2.5 million

increase in the Company’s results from operations.

The lower income tax expense resulted from a $428,000,

or 3.8%, decrease in the Company’s results from operations.

The Company’s effective

15 unchanged sentences

As part of our ongoing

asset-liability management, we seek to manage our exposure to interest rate risk by retaining in our loan portfolio fewer fixed-rate residential

loans, by originating and retaining adjustable-rate loans in the residential, construction and commercial real estate loan portfolios,

by using alternative funding sources, such as advances from the FHLBNY, to “match fund” longer-term residential and commercial

mortgage loans, and by originating and retaining variable-rate home equity and short-term and medium-term fixed-rate commercial business

We also offer a commercial loan swap product that allows the Bank to receive floating-rate interest loan payments while its borrowers

pay a fixed rate of interest on their loans.

We have also increased money market account deposits as a percentage of our total deposits.

Money market accounts offer a variable rate based on market indications.

By following these strategies, we believe that we are well-positioned

to react to changes in market interest rates.

asset-liability management, we seek to manage our exposure to interest rate risk by originating and retaining adjustable-rate loans in

the residential, construction and commercial real estate loan portfolios, by using alternative funding sources, such as advances from

the FHLBNY, to “match fund” longer-term residential and commercial mortgage loans, and by originating and retaining variable-rate

home equity and short-term and medium-term fixed-rate commercial business loans.

We also offer a commercial loan swap product that allows

the Bank to receive floating-rate interest loan payments while its borrowers pay a fixed rate of interest on their loans.

increased money market account deposits as a percentage of our total deposits.

Money market accounts offer a variable rate based on market

By following these strategies, we believe that we are well-positioned to react to changes in market interest rates.

Net Interest Income Analysis.

10 unchanged sentences

respond to changes in market interest rates.

Estimated Decrease

Estimated Increase

Interest rates

in NII Year 1

(Decrease) in NII Year 1

(Decrease) in NII Year 2

(Basis Points) (1)

(Dollars in thousands)

an instantaneous uniform change in interest rates at all maturities.

(1) Assumes an instantaneous uniform change in interest rates at all maturities.

Liquidity and Capital Resources

7 unchanged sentences

Our Asset/Liability Management Committee is responsible for establishing and monitoring our liquidity

targets and strategies in

order to ensure that sufficient liquidity

exists for meeting the borrowing needs of our customers as well as unanticipated contingencies.

We seek to maintain a liquidity ratio

of 5.0% of assets or greater.

The liquidity ratio is calculated by determining the sum of the difference between liquid assets (cash and

unpledged investment securities) and short-term liabilities (estimated 30-day deposit outflows), plus our borrowing capacity from the

FHLBNY and dividing the sum by total assets.

At September 30, 2022, our liquidity ratio was 16.6% of assets.

targets and strategies in order to ensure that sufficient liquidity exists for meeting the borrowing needs of our customers as well as

unanticipated contingencies.

We seek to maintain a liquidity ratio of 5.0% of assets or greater.

The liquidity ratio is calculated by

determining the sum of the difference between liquid assets (cash and unpledged investment securities) and short-term liabilities (estimated

30-day deposit outflows), plus our borrowing capacity from the FHLBNY and dividing the sum by total assets.

At September 30, 2023, our

liquidity ratio was 9.7% of assets.

We regularly adjust our

33 unchanged sentences

are the origination of loans and the purchase of investment securities.

We originated $159.2 million in loans and we purchased $41.1 million

of investment securities for the year ended September 30, 2022.

Comparatively, we originated $159.0 million in loans (including $35.3

million in PPP loans) and purchased $49.5 million of investment securities for the year ended September 30, 2021.

We originated $188.5 million in loans and purchased $6.6 million

of investment securities during the year ended September 30, 2023.

Comparatively, we originated $159.2 million in loans and purchased

$41.1 million of investment securities during the year ended September 30, 2022.

Financing activities consist

1 unchanged sentence

We experienced a net increase in total deposits of $87.7 million, or 13.1%,

to $667.7 million for the year ended September 30, 2022 compared with a net increase in total deposits of $21.5 million, or 3.5%, to $639.8

to $755.5 million for the year ended September 30, 2023 compared with a net decrease in total deposits of $27.9 million, or 4.4%, to $667.7

million for the year ended September 30, 2022.

6 unchanged sentences

FHLBNY advances totaled $29.5 million and $15.6 million

at September 30, 2022 and September 30, 2021, respectively.

at September 30, 202 and 2022, respectively.

FHLBNY advances have primarily been used to fund loan demand.

31 unchanged sentences

premises and equipment.

The following table summarizes

our significant fixed and determinable contractual obligations and other funding needs by payment date at September 30, 2022.

amounts represent those amounts due to the recipient and do not include any unamortized premiums or discounts or other similar carrying

amount adjustments.

Payments Due by Period

September 30, 2022

(In thousands)

Federal Home Loan Bank advances

Operating leases

Quantitative and Qualitative Disclosures

About Market Risk

Quantitative and Qualitative Disclosures About Market Risk

required for smaller reporting companies.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis